Housing the Aging Baby Boomer Population
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many of the best and most profitable investments have been connected to long-term themes. One of the next great long-term themes is America’s aging baby boomer population. Generally considered to be people born between the years of 1946 and 1964, the first of the baby boomers reached full retirement age (65) just a few months ago. These are the first of nearly 80 million baby boomers who will eventually retire. One of the next great long-term sub-themes related to this will be the future housing situations of these baby boomers.
As baby boomers get older and their children grow-up, move-out, go to college, get jobs and start families of their own, these baby boomers are left with a big empty home. Some, like my parents, will sell the big empty house they raised their kids in and purchase a smaller home in a location they always dreamed about living in. Many others will consider moving into a retirement home.
Retirement is not what is use to be. People are living longer, healthier, more active lives during their retirement. Retirement homes are also not what they use to be. There are far more options for retirees. Independent senior living communities are becoming an increasing popular option. These retirement communities are for retired seniors who do not require assisted living care. They are for seniors looking to live active lifestyles full of various activities (such as golf, tennis and the like), social programs and amenities. Think of a hotel resort, but year-round.
The amazing growth potential in the space can be seen in the acquisition of Sunrise Senior Living (UNKNOWN: SRZ.DL) by Health Care REIT (NYSE: HCN) on August 22. This acquisition gave Sunrise shareholders an overnight gain of 60%. Two other names involved in this spare are Ventas (NYSE: VTR) and Senior Housing Properties Trust (NYSE: SNH). Both are these are real estate investment trusts (REITs), required to distribute 90% of their income to investors. Ventas is the larger of the two REITs. It is the largest owner of private-pay senior housing in the country, as well as the largest owner of medical office buildings. And it is becoming larger as it continues to acquire smaller names in this space. About 60% of Ventas’s revenues are derived from senior housing. The smaller of the two is Senior Housing Properties Trust. Both companies operate many of their properties as triple net lease agreements. This means tenants agree to pay for property taxes, insurance and maintenance. What a fantastic business to be in.
The elderly population is growing much faster than the general population. Much faster, but senior living communities are growing far slower. Development of new properties has been fairly limited over the past few years. And with the financial crisis, the available credit for new building development has effectively dried up. With an increasingly high demand and little new development, owners of senior living communities will be able to increase their prices significantly as more baby boomers reach retirement age.
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